October 23, 2012

China considering major economic reforms

Reuters - China's top leaders have asked policy think-tanks to draw up their most ambitious economic reform proposals in decades that could curb the power of state firms and give more freedom to the setting of interest rates and the yuan currency.

But after almost 10 years of delay to painful structural reforms by the outgoing leadership, some of the authors of the proposals told Reuters they fear a nascent rebound in economic growth could derail the recommended agenda.

High on the list drawn up by the advisers is how to contain the government's meddling in the economy and clip the wings of more than 100,000 state-owned enterprises (SOEs) which enjoy enormous privileges, including preferential access to bank lending and government contracts.

Other reforms include allowing the market to set the cost of bank credit, land and various natural resources.

Credit is currently basically allocated by the central government. It tells state-backed banks how much to lend and when - mainly to other big state-controlled businesses and projects. Meanwhile all land and basic resources are owned by the state, with private ownership limited to temporary leased rights to usage.

Analysts say reform of these two areas would bring fundamental change to China's economic structure, even more so than making the yuan currency more convertible - also on the table as part of a package of proposals to liberalize capital markets and boost the yuan's use in global trade settlement.

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